This is a trading diary containing my views on international financial markets and economic news. I focus on the relationships between bond, currency, commodity and equity markets across countries. All ideas and opinions expressed here are shared for educational purposes. THESE ARE NOT RECOMMENDATIONS!

Oct 21, 2004

I don't remember the last time the market was so active. Either EBAY (Ebay) and KLAC (KLA Tencor) are going to keep their momentum going or the financials are going to drag the tape down. I don't think it is going to be resolved today but it feels like it will lead to a big move in one direction or the other. Either a lot of the momentum crowd will get left behind by these shake outs (3 in 3 days by my count) or the spread widening in insurance issues has finally put an end to the easy borrowing keeping the world afloat.

My best guess is that markets with real issues do not lend themselves well to momentum trading. Just pull up the chart of AOC (Aon Corp) to see what it means to be on the wrong side when a problem hits. Momentum can keep the shorts at bay but that does not keep bringing in more buyers which are the necessary ingredient of an advance.

Mostly I think today is a good opportunity to pare risk both ways. The action wants to move fast in both directions and if it continues like this the VIX (CBOE Volitility Index) is completely mispriced. It is good to finally see some tradable moves occurring within a day but I am not sure the banks that are already under pressure are in a a position to deal with rising risks.